SAN FRANCISCO , California -LRB- CNET -RRB- -- Sony , Microsoft , and Nintendo , look out . Your traditional video game console business model may be in danger .

Popular video games like the `` Grand Theft Auto '' series may soon be available on a new system .

It 's too early to tell how much danger , of course , but a start-up called OnLive announced a brand-new game distribution system Monday night that , if it works as planned , could change the games game forever .

OnLive , which was started by WebTV founder Steve Perlman and former Eidos CEO Mike McGarvey , is aiming to launch a system -- seven years in the works -- that will digitally distribute first-run , AAA games from publishers like Electronic Arts , Take-Two , Ubisoft , Atari , and others , all at the same time as those titles are released into retail channels .

The system is designed to allow players to stream on-demand games at the highest quality onto any Intel-based Mac or PC running XP or Vista , regardless of how powerful the computer .

The system will also stream games directly to a TV via a small plug-in device , and players can use a custom wireless controller as well as VoIP headsets in conjunction with it .

Based here in San Francisco , OnLive timed its formal unveiling to this week 's Game Developers Conference , where it will be showcasing the technology and 16 initial games it will launch with .

The service is currently in a closed beta , but is expected to go into a public beta this summer , and to launch this winter .

According to Perlman , OnLive 's technology will make it possible to stream the games in such a manner -- high quality , no matter what kind of system the user has -- by virtue of a series of patented and patent-pending compression technologies . And instead of requiring users to download the games , OnLive will host them all and stream them from a series of the highest-end servers . Users will have only to download a 1MB plug-in to get the service up and running .

OnLive is hoping to capture a significant portion of the video game market share . In February , the industry posted one of its strongest months ever , with total sales of $ 1.47 billion , up 10 percent from a year ago . And in February , the Xbox , PS3 and Wii accounted for total sales of 1.42 million units .

An intended benefit of this infrastructure , Perlman and McGarvey explained , is that users will be able to play streamed games via OnLive with no lag , so long as their Internet connections meet minimum thresholds . For standard-definition play , that would mean a minimum 1.5 Mbps connection , and for high-def , 5 Mbps .

That 's obviously an essential feature , as it 's hard to imagine anyone paying for a service like OnLive , no matter what games are on offer , if the user experience is inadequate . But the company promises that as long as users have the requisite minimum hardware , operating systems , and Internet connections , they should be able to have seamless play .

The upshot of this infrastructure model , Perlman said , is that OnLive is somewhat future-proof , meaning that players wo n't have to upgrade anything to keep on playing games on the system years into the future . Instead , the upgrades will happen on the back-end , with the company regularly boosting the power of the servers it uses to host and stream the games .

And while demos always have to be taken with a grain of salt , CNET News did see a real-time presentation of OnLive on at least two different computers and on a HD TV . Game play was as smooth and lag-free as advertised

So far , OnLive has yet to make its business model public , but what seems likely is some form of subscription service , where players will pay a monthly access fee and then pay additional costs , depending on whether they want to play games once , or buy them for permanent play .

The company also said that it will probably offer free trials of some or all of the games it offers , allowing consumers to decide whether they want to buy . OnLive recognizes that some players may use those trials as a way of deciding whether to buy such games from traditional retail stores , but Perlman and McGarvey suggested that as long as people are interacting with the OnLive system , they 'll be happy .

It 's clear that OnLive is modeling its system at least somewhat after Microsoft 's hit Xbox Live service . So fans of multiplayer games wo n't be on their own . Rather , they 'll have full access to multiplayer features of games built for them . And another interesting social feature is one that will allow users to digitally watch others play games in real time . The company thinks that users will find it exciting to watch the best players in action , even if they themselves are only kibitzing .

Perlman said that the concept of spectating in online game systems is , in and of itself , not new , but that OnLive presents the first time players will be able to look in on what others are playing without owning the games themselves .

Another social feature in the Xbox Live mold is what are called `` brag clips . '' These are essentially 15-second replays of game action that players can share with friends if they want to show off their prowess . This is possible , Perlman said , because OnLive is continually recording the last 15 seconds of action .

All told , McGarvey said , OnLive offers a full suite of standard social features including friends , clans , rankings , leader boards , tournaments and more .

From the outset , OnLive is n't partnering with any of the first-party publishers -- Microsoft , Sony , and Nintendo , meaning that franchises like `` Halo '' or `` Zelda '' wo n't be available . And that makes sense , since those companies are hardly likely to want to sign up with a company whose very technology may obviate their longstanding business models .

That means , Perlman and McGarvey acknowledged , that many players who sign up for OnLive 's service will still maintain their consoles , and continue to buy games for them . At least for the rest of the current generation of machines , they said . But come the next generation , all bets are off , they said .

And for the nine -- to date -- third-party publishers who have committed to being involved , McGarvey said , OnLive presents a much more efficient and profitable distribution model than the standard retail structure . That 's because the system is all digital , cutting down on physical distribution costs , and because it is designed to eradicate piracy and second-hand sales , both of which are banes of the publishers ' existence .

Indeed , McGarvey said that OnLive has gotten strong commitments of titles from the nine publishers . That means , added Perlman , that the planned launch this winter could be accompanied by the most titles of any new gaming system launch in history .

In addition , McGarvey said publishers are eager for the kind of raw data that OnLive can provide about players ' usage of the games , including whether they like or dislike games , how much they play , how they play and so on . That data is hard for publishers to collect with traditional consoles , he argued .

Clearly , OnLive has set an ambitious goal : dethroning the console makers as the game industry 's kings . And as is always the case with brand-new and publicly unavailable technology , it is far too early to know whether the company or the service can live up to that goal . But if its demo is any indication , OnLive is definitely onto something , and given that the company has been in stealth mode for so many years , it 's possible that the console makers will be caught off guard .

© 2009 CBS Interactive Inc. . All rights reserved . CNET , CNET.com and the CNET logo are registered trademarks of CBS Interactive Inc. . Used by permission .

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A start-up called OnLive announced a new video game distribution system

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System will digitally distribute first-run games from major publishers like EA

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Games will be streamed to TVs at the same time they hit stores

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Service expected to go into a public beta this summer , and to launch this winter